[ 2014-10-27 ]

Vodafone's £6bn Spanish takeover of Ono tarnished by tax fraud allegations
Vodafone’s £6bn acquisition of Ono has been
tarnished by allegations the Spanish cable
operator’s profits were inflated by tax fraud.

The British company has launched and inquiry and
blocked pay outs to former Ono executives while
the alleged fraud is investigated by Spanish
authorities.

The former chairman, chief executive and chief
financial officer of Ono had been in line to share
more than £50m in bonuses after when the takeover
was completed in July.

Jose Maria Castellano, Rosalia Portela and Carlos
Sagasta are no longer involved with the company.
Ms Portela had been due to stay on for a year to
assist in the integration of Ono but left suddenly
last month.

The allegations are understood to centre on the
company’s activities in the wholesale telecoms
market. A small group of staff traded
international call minutes off its balance sheet
via affiliate companies and allegedly without
paying VAT, and Ono profited.

Tax authorities had already been probing the
claims for nine months when Vodafone agreed to
acquire Ono in March, according to Spanish
reports. Investigators informed Ono in June, prior
to the completion of the Vodafone takeover in
July, the reports say.

Vodafone’s own inquiry is being carried out by
Deloitte and the City law firm DLA Piper. It is
believed to be focused on what Mr Castellano, Ms
Portela and Mr Sagasta knew about the alleged tax
fraud and the official investigation, and when.
Forensic auditors are trawling executive emails
for evidence.

It is understood Vodafone was not told about the
investigation before the takeover was completed
and no trace of the alleged off-balance-sheet
fraud was uncovered by its due diligence process.

A Vodafone spokesman said: “As soon as Vodafone
became aware of the issue we instigated a forensic
audit to investigate the facts relating to the
alleged fraud.

“As this matter remains under investigation, we
cannot comment further.”

Mr Castellano, a former chief executive of the
retail giant Inditex, has called the decision to
withhold bonuses for former Ono executives
“absurd and unjust” and said he will sue
Vodafone.

He said: “They have not paid me a bonus and it
is false that we have had involvement in
irregularities.

Mr Castellano said trading in international
calling minutes represented only 1.6pc of Ono
revenues and claim any fraud would have had little
impact on its financial performance. He suggested
Vodafone was looking for excuses to downgrade the
value of Ono.

The scandal casts a shadow over Vodafone’s plans
to become a major provider of fixed line telecoms
services. It is expanding its networks across
Europe via acquisitions and by building new
infrastructure so it can offer consumers bundles
of mobile, broadband, phone and television
services.

It snapped up Ono from its private equity owners
amid competition from John Malone’s cable group
Liberty Global. The deal valued the Spanish
company at 7.5 times its earnings before interest,
taxes, depreciation, and amortisation in 2013,
which Vodafone said “comfortably” met its
takeover criteria.

It is understood the scale of the alleged fraud at
Ono is not yet clear to Vodafone’s
investigators.

Source - The Telegraph

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